–Oil, Gas Prices:Karl Smith looks at how the price of oil and gas could crash. “An intensively beefed up pipeline infrastructure in North America would allow new resources to be refined more efficiently. That means greater prices for producers, which will induce them to increase production. That increase in production means less demand for foreign oil, which means lower global prices for oil and importantly gasoline. And, right now the raw materials to create that infrastructure: steel, earthmovers, and construction workers is relatively cheap. Thus it is plausible that we could see many more pipelines being built and built more quickly. The supply of North America oil and gas would increase, and the world price would fall.”

–Fed Forecasts: Dylan Matthews charts Fed forecasts. ” As you can see above, in 2009 the Fed was predicting 4.2 percent growth in 2011. Awesome! But then in 2010 it revised that down to 3.85 percent growth. And in 2011 they revised it further to 2.8 percent growth. And when all was said and done, the economy only grew about 2.4 percent that year. The Fed projected growth almost twice as fast as what actually happened. Same deal for 2012. The Fed’s first forecast, in 2010, projected 4 percent growth. 2011′s projections reduced that to 3.5 percent growth. 2012 knocked it down to 2.15 percent growth. And the final number was about 2 percent.”

–Monetary System: Michael Bordo and Angela Redish examine the international monetary system. “The Eurozone has been going through an existential crisis since 2010. The column discusses research that draws an analogy between the careful planning in the 1980s leading to the creation of the euro and the planning that led to the Bretton Woods system. The outcome for the Eurozone, as in the earlier creation of a man-made international system, may be similar — collapse or at least major reworking.” Read More »

–QE:David Altig offers one reason people shouldn’t hate QE. First “As explained by Fed Chairman Ben Bernanke in an August 2010 speech that set up the “QE2″ program: ‘The channels through which the Fed’s purchases affect longer-term interest rates and financial conditions more generally have been subject to debate. I see the evidence as most favorable to the view that such purchases work primarily through the so-called portfolio balance channel, which holds that once short-term interest rates have reached zero, the Federal Reserve’s purchases of longer-term securities affect financial conditions by changing the quantity and mix of financial assets held by the public. Specifically, the Fed’s strategy relies on the presumption that different financial assets are not perfect substitutes in investors’ portfolios, so that changes in the net supply of an asset available to investors affect its yield and those of broadly similar assets. Thus, our purchases of Treasury, agency debt, and agency MBS likely both reduced the yields on those securities and also pushed investors into holding other assets with similar characteristics, such as credit risk and duration. For example, some investors who sold MBS to the Fed may have replaced them in their portfolios with longer-term, high-quality corporate bonds, depressing the yields on those assets as well.’ I think this is a pretty standard way of thinking about the way monetary policy works. But you need not buy the portfolio-balance story in full to conclude that even traditional monetary policy operates on “selected areas of the economy such as the U.S. housing market.” All you need to concede is that policy works by altering the path of real interest rates and that not all sectors share the same sensitivity to changes in interest rates.”

–Macroeconomic Policy:Olivier Blanchard, Giovanni Dell’Ariccia and Paolo Mauro offer a piece on rethinking macroeconomic policy. “The Global Crisis has shaken the consensus on how to run macroeconomic policy. Three years ago, the authors discussed this issue on VoxEU.org. This column takes a more granular look at new efforts to rethink macroeconomic policy. It takes stock of early results and provides a more detailed agenda for the key issues that should keep policymakers and academic macroeconomists busy in the next few years.”

–Charitable Contributions:Dylan Matthews notes that only about a third of charitable contributions go to the poor. “The vast majority of charitable giving doesn’t go to things like homeless shelters and soup kitchens. According to the Giving USA report, which tracks charitable giving patterns, the biggest category of recipient is religious organizations. Note that that just includes donations to churches, synagogues, mosques, etc, and not donations to religiously inspired service groups like the Salvation Army or Episcopal Relief and Development.” Read More »

–Extreme Poverty:Dylan Matthews looks at research on how those living in extreme poverty in the U.S. get by. “But it’s worth keeping in mind that even the richest countries haven’t completely eradicated extreme poverty. That’s the key takeaway from the work of sociologists Kathryn Edin (Harvard) and Luke Shaefer (Michigan), who for the past few years have been trying to nail down the incidence of extreme poverty in the United States. Their latest research is set to be published in the journal “Social Service Review” next month. They use a slightly different measure, defining extreme poverty households as those living on less than $2 a day per person; that’s also a World Bank measure, derived from the average poverty line in the developing world, rather than the average in very poor countries. The results are astonishing. Using data from the Survey of Income and Program Participation (SIPP), a Census program that tracks samples of tens of thousands of households across 2 1/2 to 4 years, Edin and Shaefer estimate that in 2011, 1.65 million U.S. households fell below the $2 a day per person threshold in a given month. Those households included 3.55 million children, and accounted for 4.3 percent of all non-elderly households with children.”

–Euro Crisis:Karl Smith examines European views on the euro. “Money, whether its form is gold, sea shells, dollars, or Euros has potentially devastating effects precisely because folks are reluctant to give it up. For each individual abandoning a currency means abandoning everything that he or she has built with that currency. The savings of the people of Europe are denominated in Euros. Their salaries are denominated in Euros. Their land and houses have prices in Euros. To see the Euro go, would mean seeing the price of the very artifacts of their lives set adrift on the wind. This, however, is what makes the arrangement so devastating For one man’s savings is another man’s borrowings. One man’s salary is another man’s wage bill. One man’s land is another man’s rent. When these prices are too high then loans are not repaid, workers are laid off and families cannot afford the monthly rent. Everyone would be better off if all prices adjusted simultaneously, but no one individually wants to give up what he or she is owed. It is the same for the Euro. Everyone would benefit from a devaluation, and at this point perhaps outright abandonment. But, no one wants to see the nominal value of his or her assets collapse. And, so Europe is stuck.”

–Tax Exempt:Howard Gleckman uses the IRS scandal to look at tax-exempt status. “Let’s start with the obvious. Those IRS employees who singled out conservative groups for scrutiny over their tax-exempt status were wrong, wrong, wrong. Any whiff of politics at the agency is unacceptable, and this is far more than a whiff. In time, we shall see how far up the agency food chain the scandal goes. But this unsavory episode should also shine a light on the law that gives tax-exempt status to political groups of all ideological stripes, often described by the code section that grants their exemption — 501(c)(4)s. That is especially true since one outcome of this scandal will be to give these partisan groups even more freedom to operate outside of at least the spirit of the law. The only way to stop the proliferation what are often-secret campaign money laundries is for Congress to change the law that grants these groups this form of tax-exempt status.” Read More »

–Unemployment:Jared Bernstein looks at unemployment projections. “Even with a positive resolution of the fiscal cliff (and you can fill in ‘positive’ any way you like) awaiting us on the other side is the still highly elevated unemployment rate. How high and for how long? The figure below shows a bunch of forecasts of the jobless rate over the next few years, along with the CBO estimate of the full employment unemployment rate as a reference point. The most pessimistic trend is the other CBO line, as that assumes we go over and stay over the cliff. The most optimistic is Moody’s.com. Their model foresees faster growth in coming years than the others, in part because they believe the rate of household formation (and the related higher investment and consumption) will soon accelerate after being suppressed by the housing bust and Great Recession.”

–Fiscal Cliff Offers:Dylan Matthews put together a chart of the fiscal cliff offers and counteroffers. ” It can get a bit tough to follow President Obama and House Speaker John A. Boehner’s back-and-forth debt deal negotiations, so we thought we’d put together a simple chart to explain how the two sides’ positions have evolved as the talks have progressed. The following charts break down the composition of savings in each of the five offers (three by Obama, two by Boehner) that have been issued to date:”

–Fed Targets:Jeffrey Frankel says that central banks can phase in nominal GDP targets. “The time is right for the world’s central banks to rethink how they conduct monetary policy. This column argues that central banks should follow the lead of Mark Carney, the Bank of England’s new Governor, in considering a move to nominal GDP targeting. If nominal GDP targeting is introduced in two distinct phases, its introduction can deliver the advantage of some stimulus now – when it is needed – while satisfying central bankers’ reluctance to abandon their cherished low inflation target.” Read More »

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